Suzanne Miller

LONDON (CBS.MW) -- Europe's stock markets closed mixed Friday as investors shrank to the sidelines, waiting restlessly for further developments on two key fronts -- the U.S.-Iraq escalation and the Federal Reserve's monetary-policy meeting next week.

Meanwhile, Brazil shares rocked as the International Monetary Fund approved a $42 billion aid package for the country. The country's Bovespa Index jumped 173 points, or 2.3 percent, to 7643. See related story.

Japan's Nikkei 225 index closed up 1.37 percent, or 193.15 points at 14,268.21 while Hong Kong's Hang Seng finished up 49.81 points at 9,997.99. In Japan, investors are hoping the government may yet surprise them with more tax cuts when the government formally unveils its fiscal stimulus package on Monday.

Analysts said there's little good news to go on at the moment, and that recent earnings reports have been taking their toll on market sentiment. The head of Deutche Bank's European equity markets, Joe Hall said the markets more generally speaking are taking a break after the large increases of the past six weeks.

Oil stocks spike higher

Oil shares were one of the big exceptions to London's broad losses. British Petroleum and Shell, the British listing for Royal Dutch/Shell, surged as crude oil prices headed north because of the Iraqi crisis. But analysts warn that these gains are not sustainable beyond the crisis because of fundamental weaknesses in the oil sector. Deutche's Hall said margins in refining are still deteriorating and that pressure on chemicals pricing remains.

In the retail sector, Reckitt & Colman (RCOL-LS)
rcol-ls
shares plummeted when it said Friday that its like-for-like sales will finish the year "marginally lower than our stated target of 5 percent." Reckitt is the latest in a line of companies to warn that deteriorating market conditions are taking their toll on sales and profits. In early afternoon, Europe time, the shares were down 12.8 percent or 134 pence at 916.

Meanwhile, Zeneca was down 1.4 percent or 33 pence at 2250. Imperial Chemical Industry (ICI-LS
ici-ls
, ICI)
ICI, +2.66%
has said it is interested in possibly buying Zeneca's specialty chemicals business, which is worth up to 1.5 billion pounds. ICI was unchanged at 580. Deutche's Hall said there's a bit of nervousness over ICI possibly acquiring the Zeneca unit. "Speciality chemicals companies are still pretty exposed to the economic cycle," he said.

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